Why is India Inc so chary of R&D?

Lack of ambition, alternative moneymaking opportunities and deep cultural biases against innovation combine to depress private investment in research and development

Why does India Inc shrink away from R&D?

WhatsApp is a good place to feel great about ourselves as a nation, with prolific tales of ancient glory. A more prosaic view of where we stand as a nation is available from assorted global reports, for example, on hunger (111th out of 125 countries), press freedom (159th out of 180 countries), and UN’s sustainable development ranking (112th among 166 countries). In comparison, India’s rank of 40 on the World Intellectual Property Organisation’s Global Innovation Index (GII) 2023 isn’t so dismal. India ranks above all BRICS nations, except China.

Of the world’s top 100 S&T clusters, identified by the combined total of patent applications and research publications from the cluster as a proportion of the total, India houses four: Bengaluru at 56th place, Delhi 64th, Chennai 83rd and Mumbai 84th. However, when the research output is measured in terms of per resident of these clusters, Bengaluru’s rank drops to 96th, Chennai’s to 97th, Delhi’s to 99th, and Mumbai’s to 100th.

China has 24 of these clusters among the top 100, the US has 21, Germany 9, Japan, Canada, South Korea and India have 4 each, and France, Britain and Australia have 3 each. India produces the second-largest number of graduates in science, technology, engineering and mathematics, behind only China, every year. About 30% of Indian graduates tend to be in STEM, whereas that figure is 33% for Iran, 36% for Germany, 37% for Russia and 41% for China, according to Georgetown University’s Centre for Security and Emerging Technology. When distributed over the STEM population, India’s research output numbers look puny.

India has four notable S&T clusters, thanks to the more than 1,000 Global Capability Centres (GCCs) assorted MNCs have set up in India, either as direct subsidiaries or as outsourced work centres run by Indians for their global clients. There are hardly any Indian companies setting up their own capability centres in India. What makes Indian companies so shy of spending on R&D?

India’s aggregate R&D spending is one of the lowest in the world for a country with serious ambitions for economic growth and strategic autonomy. India spends less than 0.7% of GDP on R&D. In contrast, the figure is greater than 5% for tiny Israel, almost 5% for South Korea, 2.43% for China, 3.3% for Japan, 3.14% for Germany and 3.46% for the US. In a recent column, Ajay Chhibber points out that, of India’s R&D expenditure, almost 60% is carried out by the public sector, the private sector accounting for R&D spending totalling 0.26% of GDP.

The GII 2023 report observes that for 1,700 of the top 2,500 global companies that spend serious money on R&D, total R&D outlay crossed $1 tn in 2021, and rose from 3.9% of turnover in 2018 to 4.5% in 2022. Leaders in software, hardware and pharma industries spend close to a fifth of their turnover on R&D. Rare is the Indian company that spends even 1% of turnover on R&D.

What makes Indian companies so chary of R&D?

There are no readymade answers, whatever we say here must be taken as speculation. The temptation of lowhanging fruit is probably the primary culprit.

› Unoriginal sin There are so many ways to modify or adapt an existing business model or tech to Indian conditions and make good money that spending money on creating something altogether new seems like a delusion of grandeur. A more honest variant of this is licensing extant tech from the IP holder.

› Capital problem Access to capital is a constraint. Even venture funds that invest in India wish to make a quick buck from business models and technologies that have been found to work profitably elsewhere in the world. Domestic capital to finance creation of groundbreaking innovation is scarce.

› ‘Innovation is decadent’ There are multiple cultural biases against innovation. Indian tradition holds that knowledge is finite and is contained in the Vedas, and their established commentaries. The original Sankaracharya was called ‘Sarvgnya’, he who knew everything. To pursue new knowledge is to go against tradition.

Nor is this a mere matter of abstract epistemology. Authenticity and authority of the Vedas are enmeshed with traditional India’s hierarchical social structure, the caste system, at whose apex stands the brahmin, ‘lord of all creation’, as the Manusmriti describes him, whose job it is to learn the Vedas. If the Vedas are no longer the embodiment of all knowledge and are, in fact, fallible, social hierarchy with the brahmin at the top is also at risk.

› ‘Do not question’ Social hierarchy also inhibits critical thinking. To question received wisdom is anathema. The teacher teaches, the student learns, without questioning.

› Macaulay tax Overlaid on top of this is English-medium education, which imbues in the recipient a sense of superiority vis-à-vis those who study in non-English Indian languages and, simultaneously, a sense of inferiority vis-à-vis the White man. Those who study in the medium of English run the risk of being cut off from their own cultural roots and end up bereft of cultural confidence. Without validation by a White man, they would not have confidence in a new idea or business model they innovate on their own.

Overturning social hierarchy and generating a new culture of empowerment would seem to hold the key to unleashing the innovative potential of India’s millions.